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Default To Take the Greek Markets East?

For Europe and the Greek markets, it is interesting to note that Russia has extended an official invitation for Greece to join the BRICS new Development Bank. It would appear therefore, that a Greek pivot to the East should not be discounted.

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The geopolitical stakes are enormous. Would the EU try to block a Grexit and/or a pivot East?

Failed Negotiations Brings the End Closer

The Eurogroup negotiations with Greece on 11 May 2015 produced no results, and as such, the outstanding €7.2Billion in relief funds will continue to be withheld from Greece. Without these relief funds (or the rumoured Gazprom advance of € 3Bn - € 5Bn on future gas pipeline revenues), it is very likely that Greece will default on its 12th May IMF €750 Million loan repayment and the European and Greek markets will go into a tailspin.

What if Greece fails to meet this IMF loan instalment; will it be classified as a default? 

TPTB (the powers that be) will probably find a way of avoiding the classification of any Greek 'non payment' as a 'default' per se, because a default would necessitate a write down of the 'book value' of Greek sovereign debt; which in turn would result in losses by all holders of that debt, and trigger claims on some of the underlying financial derivatives such as CDS (credit default swaps) which, in total, are estimated to be in the € Trillions. 

Any 'non payment' of the scheduled Greek sovereign debt commitments should be constructive for the price of gold and silver bullion.

Germany Resigned about Fate of Greece

Schauble, the German finance minister has been recently quoted as saying;-  

"I don’t see that everything will be solved by then" (referring to the 11th May Eurogroup meeting) "Such processes also have irrational elements."

"Experiences elsewhere in the world have shown that a country can suddenly slide into insolvency."

When Schauble was asked if Germany was prepared for a Greek default, his "no comment" was prefaced in such a way as to be open to the interpretation that Germany was prepared for such an event. However, I suspect that Schauble's stance is just negotiating posturing. Bearing this in mind, do not be surprised if this Greek drama continues for several more weeks.

Capital Controls for the Greek Markets on the Horizon

The Greek markets and banks continue to see a steady withdrawal of deposits and the government has recently introduced a tax on all bank withdrawals. The longer this crisis is allowed to drag on without a resolution, the more compelling the case becomes for the introduction of capital controls, similar to that used during the Cyprus crisis.

It remains to be seen if Syriza will stand firm on its electoral mandate, or fold under the Troika’s increasing pressure. Time will tell.

Article by: James S Gibson

Date of article: 30 May 2015

Please note that none of the content within any articles on the GoldVu website are offered as investment advice and should not be construed as such.

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